Understanding the Solar Home Price Premium: Electricity Generation - PowerPoint PPT Presentation

Understanding the Solar Home Price Premium: Electricity Generation and “Green” Social Status Samuel Dastrup, Joshua Graff Zivin, Dora L. Costa and Matthew E. Kahn 1

Introduction • The residential sector consumes roughly 33% of California’s electricity • Solar homes are a leading example of “green” real estate • Generating one’s own power using renewables • Large incentives being offered to install panels at the state and the federal level • California’s Million Solar Roofs Initiative 2

Severin Borenstein’s Critique • He questions the conventional wisdom that residential solar is a cost effective investment • Triggered a huge debate among solar advocates • Solar boosters counter with “convenient” claims of learning by doing -- open question

Why Do Households Install Solar? • How does investing in solar compare to investing in a new kitchen? • Kitchen offers “use value” and re-sale value • Solar offers flow of electricity generation • PDV of this flow should be capitalized into re- sale price • For environmentalists, “existence value” from owning solar?

More on Greens • Similar to the Toyota Prius, solar panels bundle a flow of private consumption utility, public goods provision and “green conspicuous” consumption (Kotchen 2006) • This suggests that a subset of households who gain such utility will be more likely to install even if the investment has a negative NPV

This Paper’s Contribution • Solar panels are costly to install • Do homes that have solar panels sell for a statistically significant price premium? • Does this premium differ across communities in a predictable way? • Unique data from San Diego County • Similar results from another California County

Basic Hedonics and the Make vs. Buy Decision • Homes are differentiated products • A bundle of physical and neighborhood attributes structure • Unlike in the vitamins market, unable to engage in “linear aggregation” • Can’t choose a neighborhood and then build a custom home --- must choose among the existing homes in a neighborhood.

The Participation Equation Under perfect foresight, the home owner will install if � ฀ ฀ + ฀ ฀� ฀ ฀ ฀ + � > ฀ ฀� (1 � ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ) (1) ) ฀ ) ฀ ฀ (1+ ฀ ฀ (1+ ฀ ฀ ฀ ฀

Data Details • Why San Diego? • Distinctive features: • 1. permit data • 2. date of solar installation --- “placebo test” of resale price of homes that will install solar but have not installed yet • 3. “solar streets”

Solar vs Non-Solar Homes • Table 1 (Sales) – If solar: bigger, newer homes on larger lots and more likely to have pool • Table 2 (Tracts – about 4,000 people) – If solar: census tracts are whiter, higher income, more college educated and more likely to be owner occupied homes

Table 1: San Diego Summary statistics and mean comparisons for solar and no solar home sales Sales with no solar Sales with solar No solar - solar Mean Mean Difference in means Std Dev Std Dev Pr(|T|>|t|) Variable Sale price (2000 $s) 427,047 667,645 -240,599 380,536 426,980 0.000 Square feet 1,984 2,512 -528 961 1,124 0.000 Bedrooms 3.39 3.76 -0.37 0.89 0.86 0.000 Baths 2.37 2.86 -0.48 0.88 1.00 0.000 0.30 0.36 -0.06 View 0.46 0.48 0.020 Pool 0.18 0.33 -0.15 0.38 0.47 0.000 Acres 0.40 0.88 -0.49 1.51 2.56 0.001 Owner occupied 0.70 0.69 0.02 0.46 0.46 0.531 Building year* 1978 1983 -5.56 19.5 20.9 0.000 Sales since 1983 2.76 2.60 0.17 1.39 1.19 0.012 Defaults since 1999 0.29 0.22 0.07 0.62 0.51 0.018 System cost (2000 $s) + 27,790 17,245 System size (kW) 3.37 2.23 Incentive amount + 11,930 8,301 Observations 364,663 329 ( + 307) (*363,504)

Table 1: San Diego neighborhood summary stats and comparison by solar penetration Neighborhoods with Neighborhoods with No Solar - Solar no solar at least one solar Mean Mean Difference in Means Std Dev Std Dev Pr(|T|>|t|) Variable Average square footage 1,278 1,822 -544 326 535 0.000 Average acreage 0.22 0.44 -0.22 0.44 0.88 0.000 Percent with pools 3.01 15.01 -12.00 3.73 11081 0.000 Percent Green Party 0.50 0.52 -0.02 0.50 0.45 0.709 Percent Democrat 47.38 35.63 11.75 9.42 8.95 0.000 Median income ($1000s) 30.35 55.86 -25.51 11.97 22.85 0.000 Percent White 26.73 60.85 -34.13 22.70 23.67 0.000 Percent Owner Occupied 53.89 72.87 -18.99 18.21 8.95 0.000 Percent College Grads 13.54 31.19 -17.66 13.33 17.95 0.000 Percent Prius* 0.39 0.39 0.002 0.03 0.03 0.993 Percent Truck* 51.83 45.61 6.21 8.23 6.92 0.126 Observations 89 496 (*6) (*89) *Auto data variables reported at the zip code level, all others are census tract averages

Table 3: Hedonic OLS regression • Solar adds 3.6% to sales price of home after controlling for observable characteristics and flexible neighborhood price trends – $22,554 increase in price of average home – No premium if have not yet installed but will later • (Log of system size in watts) * Solar – No effect – Electricity produced in excess of annual electricity consumption donated to utility

Table 1: San Diego Hedonic OLS regression estimates of log sales price on solar panels Dependent variable: Baseline Neighborhood System Size Log(SalePrice) Coefficient Coefficient Coefficient (Std Error) (Std Error) (Std Error) Solar 0.036*** 0.031** 0.043 (0.010) (0.014) (0.137) Solar will be installed 0.004 0.004 (0.003) (0.003) Solar concurrently installed 0.028 0.028 (0.021) (0.021) Solar home in solar block 0.010 (0.020) Log Size (watts) * Solar -0.001 (0.017) Joint significance of solar F Stat = 6.60, terms Prob > F = 0.001 Log(Acres) † 0.074*** 0.074*** 0.074*** (0.003) (0.003) (0.003) Swimming Pool 0.050*** 0.050*** 0.050*** (0.001) (0.001) (0.001) View 0.049*** 0.049*** 0.049*** (0.001) (0.001) (0.001) Log(SquareFoot) † 0.432*** 0.432*** 0.432*** (0.003) (0.003) (0.003) Bathrooms 0.024*** 0.024*** 0.024*** (0.001) (0.001) (0.001) Constant 9.385*** 9.385*** 9.385*** (0.012) (0.012) (0.012) Census tract quarter fixed effects (578 tracts, 56 30,426 30,426 30,426 quarters) Observations 364,992 364,992 364,992 Sales with solar 329 329 329 R 2 within; overall 0.64; 0.34 0.64; 0.34 0.64; 0.34

Table 4: Predicted value of solar from hedonic estimates and comparison sample values (Adjusted to 2010 dollars) Predicted added value of solar at mean $22,554; ($5.65/watt) characteristics of sales with solar Average total (before subsidy) system cost of $35,967; ($9.02/watt) solar for solar sales Average net (after subsidy) system cost of $20,892; ($5.24/watt) solar for solar sales Average mean total (before subsidy) system cost of all systems installed during quarter $30,858; ($7.74/watt) of home sale (replacement cost) Average mean net (after subsidy) system cost of all systems installed during quarter $21,047; ($5.28/watt) of home sale

Heterogeneous Effects of Solar Installation: Table 5 • Higher returns to installing solar if in community with larger Prius share, lower truck share, and higher fraction of college graduates

Table 5: Hedonic OLS regression estimates of log price on solar panels with neighborhood characteristic interaction Prius Truck Green Dems Log Med College Share Share Share Share Income Grads Coeff. Coeff. Coeff. Coeff. Coeff. Coeff. (S.E.) (S.E.) (S.E.) (S.E.) (S.E.) (S.E.) Variable Solar ijt -0.002 0.198*** 0.031** -0.027 -0.156 -0.022 (0.022) (0.078) (0.014) (0.047) (0.277) (0.026) NbhdVar j * Solar ijt 0.076** -0.004** 0.009 0.002 0.017 0.001* (0.038) (0.002) (0.022) (0.002) (0.025) (0.0005) Joint significance of solar terms - 8.77; 8.90; 6.69; 7.55; 6.84; 8.09; F Stat; (Prob > (0.000) (0.000) (0.001) (0.001) (0.001) (0.000) F) Home Yes Yes Yes Yes Yes Yes characteristics Census tract quarter fixed effects 29,697 29,697 30,420 30,420 30,420 30,420 (578 tracts, 56 quarters) Observations 349,108 349,108 364,985 364,985 364,985 364,985

Table 6: Home Upgrades • Permit data for San Diego City and Escondido • Solar premium unaffected by controls for renovations • Small impact (2.5%) on sales price of remodeling kitchen, bath, replacing roof, or HVAC system • High value renovations (about 35K+) increase sales price by 5.6%

Table 6: Hedonic OLS regression estimates of solar on log price with building permits Major High value Baseline Any Permit renovation renovation Coefficient Coefficient Coefficient Coefficient (Std Error) (Std Error) (Std Error) (Std Error) Variable Solar ijt 0.062*** 0.062*** 0.060*** 0.062*** (0.016) (0.016) (0.016) (0.016) Building Permit ijt 0.025*** 0.056*** -0.036*** (0.007) (0.005) (0.001) Home characteristics Yes Yes Yes Yes Census tract quarter fixed effects 13,416 13,416 13,416 13,416 (578 tracts, 51 quarters) Observations 136,389 136,389 136,389 136,389 Sales with solar 122 122 122 122 Sales with permit 725 1,411 20,324 Sales with solar and 4 12 25 permit R 2 within; overall 0.57; 0.31 0.57; 0.31 0.57; 0.31 0.57; 0.32 ***Significant at the 1% level

Table 7: Repeat Sales • Similar story • 3.6% return • Decreasing returns to system size